Abstract

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Business Method Patents and Patent Floods

Technological breakthroughs occasionally set off floods of inventions and associated patents. The decline of the business method exception to patentability is likely to increase the frequency of patent floods. Future technological breakthroughs might now cause two different patent floods: a flood of patents covering the relevant technology, and a flood of patents covering business methods in the new market opened by the breakthrough. Furthermore, a technological breakthrough is no longer a precondition for a patent flood. Any factor that opens a new market might cause a future flood of business method patents.

A flood of related patents in a new market creates special problems for competition in addition to the usual problems that arise from market power associated with individual patents. Patent floods strain the resources of the Patent Office and adversely affect the quality of issued patents. Of particular concern, reduced patent quality increases uncertainty about the scope and validity of patents and increases the frequency of patent litigation. The fragility of the many start-ups in new markets makes them vulnerable to strategic patent litigation. Furthermore, a thicket of patents may stultify development of technology because of the cost of securing patent licenses from the large numbers of patent owners. Cross-license agreements and patent pools mitigate problems caused by floods, but such agreements could be difficult to reach in response to future business method patent floods. The heightened risk of patent floods is a problem unique to business method patents, and justifies exceptional treatment of business method inventions. It is probably socially desirable to use the subject matter and nonobviousness standards for patentability to restrict grants of business method patents.